How John Prescott wasted £2.2bn

Why has the government been turfing people out of their homes and knocking down perfectly sound houses? It's all down to one especially ill-thought-out policy: the Pathfinder scheme.

The Government has produced many ridiculous policies over the past ten years, from tax credits to the Millennium Dome, but none are as bafflingly pointless as John Prescott's Pathfinder scheme.

In 2003, the then-Deputy Prime Minister's plan to rejuvenate collapsing property markets in many northern cities including Liverpool, Manchester and Hull and build sustainable communities was announced to much fanfare.

The plan was to "bring back to life those areas where there is low demand for housing and where, in the worst cases, homes have been abandoned", said Prescott. And the way to create this nirvana? Bulldoze 90,000 slum' houses.

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The idea of knocking down houses to compensate for a lack of demand at a time when the rest of the UK was undergoing a property boom (which all the pundits liked to put down to a shortage of affordable properties) didn't make much sense, even at the time. And now, four years later, it's been revealed as the most ill-thought-out policy the Labour government has ever introduced.

Many people have been evicted from their homes with no thought of where they should go, thousands of structurally sound buildings have been demolished and many more derelict estates created as a result of demolitions and renovations being held up in the planning stages. "Given its performance to date, it is hard to think of another programme that was trumpeted with as much fanfare, but which has hit so many wrong notes," says Edward Leigh, chairman of the Public Accounts Committee.

The first problem with the plan rapidly became apparent. Why spend hundreds of thousands of pounds and many years demolishing rows of terraced houses that could be renovated for half the cost and in a fraction of the time?

In 2005, the Tonight With Trevor McDonald show highlighted this flaw by sending two experts to renovate a terraced house in Toxteth, Liverpool. In two weeks the pair spent £24,000 on turning the house into a desirable two-bedroom home valued at £65,000. That's only £6,000 more than the £18,000 cost of demolishing the building and considerably less than the cost of building a new one on the site. Best of all, the house was affordable the homes that were planned to replace that terrace were expected to sell for around £140,000. With so many first-time buyers being priced out of the market and the Government pushing various shared-ownership schemes to help, where was the sense in a plan purposely to inflate property prices?

The second signs of trouble appeared when the Government began trying to issue compulsory purchase orders. What John Prescott and his team may have regarded as slums, many people called home; they didn't want to leave. Especially as there was a sizeable gap around £35,000 between the £28,000 they were to be given for their home and the price of a typical new house in the area. On top of this, property investors swooped in and bought streets of abandoned houses in order to make a profit from the compulsory purchase orders. These factors ended up "putting the overall bill up by £50m over five years", reports the National Audit Office.

The final evidence of the stupidity of the scheme was released last week when the National Audit Office published a report saying that it was "not possible to identify a causal link" between the Pathfinder programme and changes in the local property markets. Prices have gone up, but that's been the case across the entire country. So the £2.2bn project has achieved no visible results. And yet the Government has just assigned a further £1bn to the Pathfinder scheme.

In any case, it's almost impossible to work out exactly what the Government was hoping to achieve anyway. The idea that improving houses in isolation and driving up the prices can somehow regenerate areas bereft of jobs and decent infrastructure is hopelessly naive. Even estate agents know that the key to finding a decent home is location, location, location'.

So we are left with a baffling policy that has led to 10,200 houses being demolished, 1,000 built and 37,000 fell derelict awaiting the bulldozer. And for what? Because the Government was horrified that houses were selling for "as little as £5,000".